Pfizer and J&J were under pressure after the drug giants discontinued development of a highly anticipated experimental treatment for Alzheimer's disease after the drug failed to achieve key goals in a late stage clinical trial.

The S&P 500 rose 7 points, or 0.51%, to finish at 1401, settling above 1400 for the first time in three months and moving within 2% of its four-year high.

The Nasdaq Composite surged 26 points, or 0.87%, to finish at 3016. It was the index's first close above 3000 since May 3.

All three major U.S. equity indices rose for a third straight session.

In the broad market, the consumer cyclicals, energy and capital goods sectors fared best while utilities, health care and consumer non-cyclicals ticked lower.

Winners outpaced losers by a roughly 2-to-1 ratio on both the New York Stock Exchange and Nasdaq. Volume totaled 3.67 billion on the Big Board and 1.89 billion on the Nasdaq.

Buyers keyed off comments from Eric Rosengren, president of the Federal Reserve Bank of Boston, who said in an interview with The Wall Street Journal that the Fed should launch an aggressive, open-ended bond buying program that would continue until economic growth picks up and unemployment starts falling again.

Rosengren also said he believes the Fed should buy more mortgage-backed securities and possibly U.S. Treasury bonds, and make it clear that it will continue to do so "until we start seeing some pretty significant improvements in growth and income," the newspaper reported.

European stimulus hopes also were prevalent. Ahead of the European Central Bank's next meeting on Sept. 6, there are growing expectations that the central bank will be working out a plan with the bailout funds to lay out a path on bond-buying.

"The markets today have hit new highs as a result of mostly extensive short covering in anticipation of more central bank stimulus in the U.S. and bond buying by the European Central Bank of distressed debt in Europe," said Jeffrey Sica, president and chief investment officer of Sica Wealth Management. "The typical low volume has amplified the returns and given investors the illusion that market conditions are better than they are."

Sica said the vagueness of the promise of European Central Bank president Mario Draghi to do "whatever it takes" to keep the eurozone intact is actually helping stocks right now.

"We have yet to hear what the 'whatever' is, so investors are 'filling in the blank' with the dream solution of extensive bond buying by the ECB."

Sica cautioned that although bond buying would reduce borrowing costs significantly, the ECB does not have the capital available unless they print money -- the notion of printing money may appease investors temporarily but "is not only against the charter of the ECB -- it will ignite incomprehensible inflation in distressed countries, which will lead to social unrest ."

He anticipates this rally to continue as long as these hopeful ECB expectations remain strong. On the other hand, the market will fall when these expectations aren't met and the economy gets worse and not better, Sica said: "The only way to true recovery is to abandon 'government induced' solutions and return to a focus on a free market that doesn't rely on artificial liquidity as its foundation."